Many people struggle to maintain a great credit score. That happens most of the time because they find it hard to manage credit responsibly. While some people do not know what makes up a credit score, others go above limits, and this tells badly on their credit rating. People are getting more scared and frustrated about their credit score than they are about illegal stuff. Some parents have trained their kids from that young age to avoid credit altogether, which is wrong. Such beliefs are not meant to be. In fact, credit is meant to be a financial cushion you can fall back on anytime because life could happen to anyone. You may not be able to help it when it happens, but having a good credit score could make the difference.

Think about the whole new world a good credit score could open for you. They used to say having your credit score in a good range is nice, but there is more to that today. Settling your mortgage, subscribing for insurance packages, buying a car, getting college loans, and even parents who want their teens in some of the best colleges in town. A good credit rating is simply great! Experts recommend that you have at least $10,000 of credit at your disposal.

Credit bureaus update your credit information on their database. When you walk into an insurance company, a real estate agency or a bank to request for credit, they rely on the information provided by these bureaus. There are three of these in the United States: Experian, Equifax, and Transunion. Maintaining a good credit score in each will make the difference since you would never be able to say which bureau supplies credit data to that agency. You will learn what makes up your credit score, how to increase your score and get a free credit report from credit agencies.

What Makes up your Credit Score?

Chances are you are not the first person asking this question. In the simplest explanation, your credit score comprises 5 important scorecards. These are your payment history, credit usage/utilization, credit age, types of credit, and request for new credit.

Payment History

Your payment history makes up 35% of your credit score. It is basically a record of how true and disciplined you have been with credits over a period of time. Lenders want to give their money to individuals with low credit risk. They want to be sure you have always kept to financial commitments in the past. A FICO® score of 670 and above or a VintageScore® of  700 gives you better chances at getting credit. There is no point in being worried or scared if your score is not up to this at the moment. The one secret to maintaining a good payment history is paying up bills on time. Do you know that paying bills late can reduce your credit score by 10-20%? That could see you going from a good 670 to a poor 536.

You want to do all you can to avoid paying your bills after they are 30 days late. That will go a long way to improve your overall credit rating since your payment history contributes 35% to your overall credit score. If you are in a tight situation; let's say you forgot to pay until it's so late, you still have a chance. You can write a goodwill letter to your payment company asking them to reverse your late payment. Doing this will not take you back to your former credit score but you will definitely be in a better position.

Amount Owed (Credit Utilization)

Credit bureaus will peg 30% of your credit score to credit usage. Your discipline with using available credit is critical at this point. If you have $10,000 worth of credit, do you just use $8,000 to buy that good looking home? The answer is no! The best advice here is to use no more than 30% of your available credit. Some experts recommend 20% but in case you have to, make sure it does not go beyond the 30% mark. Your credit usage is based on revolving credit only. Revolving credit includes credit cards, departmental store cards etc. So when your bureaus calculate your credit usage score, they do not include installment credit such as auto, mortgages, etc. To calculate your credit usage limit, simply multiply your available revolving credit by 0.3.

It doesn’t matter if you chose secured or unsecured credit cards. What is important is that you always pay on time. Adding an authorized user to your credit card can help you improve your score, and credit profile. Keep in mind that your authorized user has no late payments, and maintains a 10% balance.

Length of History (Credit Age)

Your time starts counting as soon as you receive your first credit. Some percentages of all credit scores are based on the length of credit. What that means is that if you got started building credit 3 years ago, your credit age score is weaker than someone who started 8 years back. Lending institutions base their decision on data. The longer the length of the credit profile, the more data banks, and other institutions will have to decide whether you are qualified for that credit. Credit age contributed 15% to your overall credit score.

 Types of Credit

Your credit type is a breakdown of the two broad categories of credit, one of which we talked about earlier. Revolving credit is mostly from credit cards, while auto loans, home loans, student loans, and utility bills make up your installment credit. You will need a good credit mix to have a good credit rating and a strong credit profile. Lending institutions are more confident about your credit score when you have used the various types available to you over time, and you haven’t defaulted on any. The types of credit you use determine 10% of your credit score.

Request for New Credit

Unlike most people think, applying for credit cards will help show lending institutions how responsible you are with credits. When you apply for a new credit card, your credit score may go down by about 2 points. That just happens, anyway, but if you keep using your credit responsibly, your credit score will go back up again.

 Important Points

Free credit reports may not serve you ultimately. You should pay for an authentic FICO® Score or VintageScore® to get a comprehensive 3 in 1 report. Invest in getting reports that will give you all the information. Free consumer reports will hardly help you position yourself for any kind of financing.

Following the latest adjustments on the VintageScore® 3.0 and 4.0, credit score ranges are the same as the FICO® score of 300-850. On the credit range, a score of 300 to 559 is poor, 580 to 669 fair, 670 to 739 good, 740 to 799 very good, and 800 to 850, excellent.

Your payment history and credit utilization are the two most important points you should note. They contribute 65% to your credit score. You may never achieve anything good credit ratings if you fail on these two. Achieving a good credit rating remains a dream for most people, but you can achieve it by carefully following the points in this article. At some point, what you need is professional help to repair your credit. It is good you know this because it works for most people. If that is your case, feel free to reach out to us at Iconic Credit Service today. We will make your poor credit score a forgotten story.


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